Minimizing taxes on roommate income.

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If you own a house and have a roommate who pays you rent are there any legal ways to reduce the taxes you pay on that income. A couple of people I know simply don't declare the income, however that seems like a bad idea since a quick glance at a person's bank statement would tell the IRS what's going on. Rent payments in cash are another option, but that's still not entirely legal. Is it possible offer a roommate reduced rent in exchange for him or her paying the entire electric/cable/water bill? That way the rent check the roommate pays would be smaller, which would then reduce my taxable income. I'm figuring this probably also isn't legal, but what're the chances of getting caught?

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surprised no one has suggested he pay with --- Hookers and Blow

germanpope (Jul. 13, 2008 @ 2:54a) |

From my experience, not that many people renting a room from their primary residence reports the rent as income. Legall... (more)

fasttimes (Jul. 13, 2008 @ 3:20a) |

Be careful taking a roomate as a TENANT. You may have a hard time evicting them if they become problematic.

SUCKISSTAPLES (Jul. 13, 2008 @ 3:24a) |

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Why would the IRS take a look at your bank statement unless you were audited?

With all the monitoring of people's finances that goes on nowadays I figured they'd have an automatic system that would detect it if I were depositing a check for several hundred dollars into my account on the first of each month.

I know a guy who has the roommate pay his mortgage.

With all the monitoring of people's finances that goes on nowadays I figured they'd have an automatic system that would detect it if I were depositing a check for several hundred dollars into my account on the first of each month.

I guess that's possible if you were being investigated for something else lol. All they get from the average person is a 1099 from your bank(s) showing interest earned. It doesn't show any transactions or even how much you have..

ppatin said: Rent payments in cash are another option, but that's still not entirely legal.Actually, it's not even partially legal.

BTW you're probably writing off mortgage interest on your taxes, right? So why do you want to avoid paying taxes on the rent payments you get?

How about calling it “helping to pay living expenses”

svap said: How about calling it “helping to pay living expenses”

I have heard a few people claim that money from a roommate can be considered "shared living expenses" and not be declared as income, but I am extremely skeptical about the legality of that.

Cloudee said: BTW you're probably writing off mortgage interest on your taxes, right? So why do you want to avoid paying taxes on the rent payments you get?

I'm not trying to do anything illegal here, although it is kind of fun to speculate about under the table cash rent payments and all that. I'm just trying to (legally) minimize the amount that I do pay in taxes.

Honestly I don't think it'd be an issue...unless you got audited :p

Nothing is an issue until you get audited then that $1k that you deducted for hookers and blow as a business expense gets alot of scrutiny.

Sure you could have an arrangement where the roommate pays the cost of cable or electricity instead of rent. If that works for you better than just charging a flat monthly rent, great.

By the way, receiving rent in cash is not illegal. Not declaring all your income for tax purposes IS illegal.

If you file schedule E you can also deduct expenses (advertising, painting, etc) that are directly related to renting out part of your home.

Bottom line: You've got to pay taxes on all your income, not matter how you earn it. Why not just pay your taxes and be done with it?

Kanosh said: Bottom line: You've got to pay taxes on all your income, not matter how you earn it. Why not just pay your taxes and be done with it?

I know, but rent income could add up to a good six or seven thousand bucks per year, so it makes sense to figure out how to pay as few taxes as I legally can on that money.

Get a Nolo book about being a landlord out of the library, it should have stuff on taxes in there. There are legitimate things you can do, like write off expenses and claim depreciation, but anything that involves giving a transaction a name that doesn't reflect its true nature (like calling rent shared living expenses) isn't likely to work.

Don't do it man, for the love of god you'll have to fill out Schedule E!

WalStMonky said: Don't do it man, for the love of god you'll have to fill out Schedule E!

That's what TurboTax is for.

GroveStreetOG said: Get a Nolo book about being a landlord out of the library, it should have stuff on taxes in there. There are legitimate things you can do, like write off expenses and claim depreciation, but anything that involves giving a transaction a name that doesn't reflect its true nature (like calling rent shared living expenses) isn't likely to work.

Thanks for the advice, I'll definitely check that book out.

OP, are you referring to your friend whom you allowed to live in your place? The one who reimburses you for the expenses you've incurred as a result of his living there? Reimbursements are not taxable, the last time I checked.

ppatin wrote:

"...Rent payments in cash are another option, but that's still not entirely legal. Is it possible offer a roommate reduced rent in exchange for him or her...[blah blah blah]...I'm figuring this probably also isn't legal, but what're the chances of getting caught?"



ppatin then wrote:

"I'm not trying to do anything illegal here...I'm just trying to (legally) minimize the amount that I do pay in taxes."



Cognitive dissonance?

ppatin said: WalStMonky said: Don't do it man, for the love of god you'll have to fill out Schedule E!

That's what TurboTax is for.


I can tell you've never had to do a schedule E. Will TurboTax remember to recapture depreciation 15 years from now when you sell the home?

Cloudee said: BTW you're probably writing off mortgage interest on your taxes, right? So why do you want to avoid paying taxes on the rent payments you get?Because he's probably not writing off the cost of his rental property maintenance, utilities, and depreciation. Business use of a home is like asking for an audit. I use part of my home for business, but I wouldn't consider writing it off.

Just take the cash and spend it, man. Or have him pay your mortgage, utilities, or BT minimums. Do you declare it as income when you eat dinner at someone's home? When your renter does the dishes and one of your plates is in the sink, do you declare the fair market value of the maid service provided?

If you get audited, it's very likely to come out close to a wash, once you consider maintenance, utilities, association dues, and depreciation. Don't sweat it.

GroveStreetOG said: Get a Nolo book about being a landlord out of the library, it should have stuff on taxes in there. There are legitimate things you can do, like write off expenses and claim depreciation, but anything that involves giving a transaction a name that doesn't reflect its true nature (like calling rent shared living expenses) isn't likely to work.

What would you recommend if it was boyfriend & girlfriend situation?

Cavendish said: ppatin wrote:

"...Rent payments in cash are another option, but that's still not entirely legal. Is it possible offer a roommate reduced rent in exchange for him or her...[blah blah blah]...I'm figuring this probably also isn't legal, but what're the chances of getting caught?"



ppatin then wrote:

"I'm not trying to do anything illegal here...I'm just trying to (legally) minimize the amount that I do pay in taxes."



Cognitive dissonance?


Like I said, it's fun to speculate about how I'd go about cheating the IRS but I wouldn't actually do it.

Does nobody else use Google or the IRS website?

Typing "rental income site:irs.gov" into Google's search box gives this link as the second result.

2Cor521

People can gift others money. What is it $10K or $11K now each year? And of course, you can let a friend live at your place rent free. Still that seems kind of shady.

Maybe he can pay the electric bill, cable, phone, etc.

Do you report income from eBay?
Do you report income from private sales?

Both are required (if they exceed a certain value).


Unless you're writing off your home as a business, I see "roommate" income fall into the same category.
Make sure you separate the income portion of it from expenses - such as utility bills and other shared costs.



In other words: Why bother?

Reduce the rent you charge. Less rent = less income = less taxes...

Do you report income from eBay?
Do you report income from private sales?

Both are required (if they exceed a certain value).


What are the limits for eBay sales? And am I required to pay taxes on money from my used CDs/games? That seems kinda silly if I'm not running a business..

Here is consensus from the tax experts. Basically, you use vacation home rules. But, even a few CPAs say that it is unlikely that it is reported to them.

Cloudee said: Do you report income from eBay?
Do you report income from private sales?

Both are required (if they exceed a certain value).
What are the limits for eBay sales?
$1, assuming you already are filing a return.
And am I required to pay taxes on money from my used CDs/games? That seems kinda silly if I'm not running a business..If you have any income from it, absolutely. If you bought a CD new for $20 and sell it used for $10, you don't have any income and have nothing to pay taxes on.

If you have any income from it, absolutely. If you bought a CD new for $20 and sell it used for $10, you don't have any income and have nothing to pay taxes on.

Ok, that makes sense. Thanks!

Cloudee said: If you have any income from it, absolutely. If you bought a CD new for $20 and sell it used for $10, you don't have any income and have nothing to pay taxes on.

Ok, that makes sense. Thanks!
I did not understand here. If you used it then it suppose to get depresiated and $10 looks like your income, because otherwise you've just trown it away or even pay your town to utilise it. This is not an investment or stocking stuffers?

Selling used games on CDs is indeed a business.

Also the tread title "Minimizing taxes" doen't sound appealing to me. How about optimising?

ANightShopper said: Cloudee said: If you have any income from it, absolutely. If you bought a CD new for $20 and sell it used for $10, you don't have any income and have nothing to pay taxes on.

Ok, that makes sense. Thanks!
I did not understand here. If you used it then it suppose to get depresiated and $10 looks like your income, because otherwise you've just trown it away or even pay your town to utilise it. This is not an investment or stocking stuffers?

Selling used games on CDs is indeed a business.

Also the tread title "Minimizing taxes" doen't sound appealing to me. How about optimising?


It is "depreciated" to the amount you sold it for- it's market value. If I had used it's full value down to $0 no one would buy it. You don't "depreciate" used personal goods. I paid $20 for it; I sell it for the $10 it is worth. I made no profit.

Selling your own personal used items is not a profit generating business. It is just disposing of used goods in a normal manner. The exception would be collectibles that increase in value.

Of course if you go out and buy used goods and sell them you are now a dealer and a "business."

And minimizing taxes is the correct strategy - for everything. Who "optimizes" taxes? As applied, it would mean the same thing anyway.

Have your roommate make a payment into your FIA credit card. Then, use the MBNA billpay feature (hoping it would still be alive) to pay your other bills.

surprised no one has suggested he pay with --- Hookers and Blow

From my experience, not that many people renting a room from their primary residence reports the rent as income. Legally, you have to report it, but usually the people that do this don't have they type of income that makes them a likely candidate for an audit.

In other words you probably will get away with not reporting it, but you have been warned.

If you DO decide to report the income, contact an accountant and they will help you setup a way to minimize taxes by using depreciation -- though that in itself can be a headache when it comes time to sell your property. Make sure you understand the ramifications first.

Be careful taking a roomate as a TENANT. You may have a hard time evicting them if they become problematic.



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